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Berkshire Hathaway released its annual letter to shareholders on Saturday, written with Chief Executive Warren Buffett's usual combination of common-sense advice and belief in the power of investing.

RED FLAG ON PUBLIC PENSION PLANS:

"Local and state financial problems are accelerating, in large part because public entities promised pensions they couldn't afford. Citizens and public officials typically under-appreciated the gigantic financial tapeworm that was born when promises were made that conflicted with a willingness to fund them. Unfortunately, pension mathematics today remain a mystery to most Americans. Investment policies, as well, play an important role in these problems. In 1975, I wrote a memo to Katharine Graham, then chairman of The Washington Post Company, about the pitfalls of pension promises and the importance of investment policy. That memo is reproduced on pages 118-136. During the next decade, you will read a lot of news - bad news - about public pension plans. I hope my memo is helpful to you in understanding the necessity for prompt remedial action where problems exist."

ON BERKSHIRE'S EXPOSURE OF BofA:

"Berkshire has one major equity position that is not included in the table: We can buy 700 million shares of Bank of America at any time prior to September 2021 for $5 billion. At year-end these shares were worth $10.9 billion. We are likely to purchase the shares just before expiration of our option. In the meantime, it is important for you to realize that Bank of America is, in effect, our fifth largest equity investment and one we value highly."

ON BUYING MORE H.J. HEINZ:

"Though the Heinz acquisition has some similarities to a 'private equity' transaction, there is a crucial difference: Berkshire never intends to sell a share of the company. What we would like, rather, is to buy more, and that could happen: Certain 3G investors may sell some or all of their shares in the future, and we might increase our ownership at such times. Berkshire and 3G could also decide at some point that it would be mutually beneficial if we were to exchange some of our preferred for common shares (at an equity valuation appropriate to the time)."

NV ENERGY 'FITS NICELY' INTO BERKSHIRE:

"NV Energy, purchased for $5.6 billion by MidAmerican Energy, our utility subsidiary, supplies electricity to about 88 percent of Nevada's population. This acquisition fits nicely into our existing electric-utility operation and offers many possibilities for large investments in renewable energy. NV Energy will not be MidAmerican's last major acquisition."

'GEICO'S FLOAT WILL ALMOST CERTAINLY GROW':

"Further gains in float will be tough to achieve. On the plus side, GEICO's float will almost certainly grow. In National Indemnity's reinsurance division, however, we have a number of run-off contracts whose float drifts downward. If we do experience a decline in float at some future time, it will be very gradual - at the outside no more than 3 percent in any year."

HUNT FOR BERKSHIRE'S BEAR:

"And we will again have a credentialed bear on Berkshire. We would like to hear from applicants who are short Berkshire (please include evidence of your position)."